Commodities, Inventory & Collectibles

How to Underwrite a Digital Asset Treasury

Underwrite a digital asset treasury by measuring how much leverage the holdings can carry through a severe price drawdown, then verifying custody and control. The metrics that matter most are LTV against spot with margin call and liquidation thresholds, asset concentration and market liquidity, custody arrangements and the gap between the company's market value and its net asset value.

What makes crypto treasury underwriting different

A digital asset treasury holds cryptocurrencies such as bitcoin or ether on its balance sheet, sometimes as the central strategy of a public company that raises equity and debt to buy more. Value comes from the market price of the holdings, which can fall sharply within hours, and from any yield earned through staking or lending. Risks include extreme volatility, custody failures and hacks, exposure to exchanges and lending counterparties, regulatory change and fair value accounting swings. Companies that fund purchases with secured debt face a feedback loop: falling prices cut collateral value, trigger margin calls or forced sales and can deepen the decline.

Lenders financing digital assets set LTVs with large cushions, monitor prices around the clock and liquidate quickly when thresholds are breached. They require qualified custody, control agreements or multi-signature arrangements and limits on rehypothecation. Equity investors underwrite long-term price appreciation, the premium or discount of company shares to net asset value and management's ability to issue capital accretively. Equity tolerates volatility and leverage as part of the thesis, while lenders focus on surviving severe drawdowns, the time needed to liquidate and whether the company can service unsecured or convertible debt without selling holdings at the bottom.

Key metrics

Loan-to-value and margin thresholds

Prices can fall quickly, so starting LTV, margin call and liquidation levels determine lender protection.

Crypto lenders commonly start well below 50% LTV on bitcoin, with margin calls and liquidation triggers set at progressively higher levels.

Asset concentration and market depth

Smaller tokens can gap down and have thin order books, making liquidation costly.

Custody arrangement

Qualified custody, segregation and key controls reduce theft, loss and commingling risk.

mNAV (market value to net asset value)

For treasury companies, the premium or discount to holdings drives the ability to raise equity accretively.

Debt maturities and conversion terms

Convertible notes and loans must be repaid or refinanced regardless of where prices sit at maturity.

Counterparty exposure

Assets held at exchanges, lent out or staked through third parties carry credit and operational risk.

How to underwrite it, step by step

Verify holdings through on-chain address checks, custodian statements and independent attestations.
Review custody arrangements, key management, insurance and multi-signature controls.
Assess liquidity for each asset across venues, including order book depth for liquidation-sized trades.
Model severe price drawdowns and their effect on LTV, covenants and liquidity.
Review existing secured loans, convertible notes, preferred stock and any margin arrangements.
Set LTV, margin call and liquidation thresholds with control mechanisms over collateral.
Monitor prices and collateral continuously and enforce margin calls within the agreed cure period.

Due diligence checklist

Custodian statements and on-chain address verification
Custody agreements and insurance coverage
Key management and access policies
Proof of reserves or independent attestation reports
Loan, convertible note and preferred stock agreements
Exchange and prime broker account statements
Board-approved treasury policy
Audited financial statements
Regulatory filings
Staking or lending agreements

Key risks and mitigants

Severe price drawdown

Use conservative starting LTV, automated monitoring and short margin call cure periods with liquidation rights.

Custody failure or hack

Require qualified custodians, segregated accounts, multi-signature control and insurance.

Exchange or counterparty default

Limit assets held at exchanges or lent to third parties and require segregation.

Regulatory or tax change

Restrict eligible collateral to assets with clearer regulatory status and monitor developments.

Collapse of the equity premium to NAV

Test whether debt can be serviced and refinanced without issuing equity at a premium.

Typical financing and deal structure

Digital asset treasuries are financed through common equity offerings, at-the-market programs, convertible notes, perpetual preferred stock and secured loans against crypto holdings. Crypto-backed loans are overcollateralized, with margin calls and automatic liquidation when LTV crosses agreed thresholds, and collateral held with a qualified custodian under tri-party control. Some companies favor long-dated unsecured convertibles specifically to avoid margin calls, shifting risk to refinancing at maturity. Lenders typically require restrictions on rehypothecation, daily reporting and limits on eligible assets. Equity investors buy treasury company shares for leveraged exposure, often paying a premium to net asset value that can disappear in a downturn.

Red flags

Holdings cannot be verified on-chain or through independent custodian statements.
Most assets held at a single exchange or lent to one counterparty.
Starting LTV too high relative to historical drawdowns.
Large debt maturities with no refinancing plan other than issuing equity at a premium.
Undisclosed rehypothecation of collateral.

Frequently asked questions

How do crypto-backed loans work?

A borrower deposits crypto as collateral with a lender or custodian and borrows cash or stablecoins up to a set loan-to-value. If prices fall and LTV rises past a margin call level, the borrower must add collateral or repay. If LTV reaches the liquidation threshold, the lender sells collateral to repay the loan.

What is a digital asset treasury company?

It is a company, often publicly listed, that holds significant cryptocurrency as a core strategy and raises equity and debt to buy more. Its share price reflects holdings plus or minus a premium to net asset value. Its risk depends on leverage, debt terms, custody and whether it can keep raising capital in weak markets.

Why do crypto loans use low LTVs?

Crypto prices are highly volatile and can drop sharply within hours, including over weekends when traditional markets are closed. Low starting LTVs give lenders time to issue margin calls and, if needed, sell collateral before its value falls below the loan balance. Less liquid tokens receive even lower LTVs or are excluded.

What custody arrangements do crypto lenders require?

Lenders typically require a qualified custodian, segregated accounts, multi-signature or policy controls that prevent the borrower from moving collateral alone, and insurance. They want assurance that keys are protected against theft and loss and that collateral cannot be rehypothecated or withdrawn without the lender's approval.

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Educational content, not investment, credit, legal or tax advice. Benchmarks are common practitioner rules of thumb and vary by lender, market and cycle.